Oklahoma Economic incentives – What Value?

Whether each state offers incentives to attract businesses to relocate or remain in their state is largely a by-product of the incentives offered by competing states. If other states offer incentives, the logic is that Oklahoma has to in order to compete. And I’m not going to argue against that.

Much has already been written on this topic, but today we are going to focus on a different angle: the accountability for those companies and investors that receive funds or assistance from our state. Perhaps there would be universal approval for state funded incentives by Oklahoma if the public could have greater confidence in the economic benefit to our state of the use of those funds. Here are some thoughts on ways to increase the effectiveness of the incentives and improve public perception and support.

1)Rules and Covenants for Receipt of Funds

As we see it, economic incentives are one piece in the puzzle of financing solutions in the capital structure of a business. ClearRidge has assisted in the awarding of millions of dollars in incentives for our client companies. The notable difference with incentives compared to any other part of the capital structure is that there is less accountability for each dollar offered up in economic incentives, exemptions, refunds or assistance, than in any other part of the capital structure. Perhaps this should change.

Every state could do more to ensure that each dollar is used in a manner that will stimulate the economy, grow jobs and create a more competitive business environment in that state. In offering funds, exemptions, refunds or assistance, the state could go through a similar rigorous screening and due diligence procedure that would be typical for any bank debt or equity financing. There could also be a strict set of covenants, which the recipient would need to comply with.

2) Integrity Monitoring of Each Business

Every business that receives an incentive could be subject to strict oversight, also known as Integrity Monitoring. This is a form of ongoing compliance to track the use of funds, to detect and prevent fraud and corruption. If any breaches of the intended use occur, there could be a system in place to take corrective action.

3) Reporting and Tracking of Effectiveness of economic incentive programs.

If it is not already in place, there could be metrics set up to check the effectiveness of each incentive program and each dollar spent. Effective tracking of these programs would provide the state with better intelligence on how to apply future funds to the most effective programs. In addition, it would provide empirical evidence to support the value of each type of incentive. If there was data to detail the economic benefit to our state of each dollar invested, it would allow Oklahoma to confidently invest increasing amounts of money with a predictable and measurable economic return. We have assumptions about the most effective incentives, but not hard evidence.

How much better decisions could we make, if we had real data to support or contradict our hypothesis and allow us to make increasingly effective allocations?

Note: While the tone of this blog may seem to contradict our support of economic incentives, the reason that we have taken the time to focus on this, is that we believe that this system could be so much more efficient and effective than it already is. We want to see Oklahoma’s incentive programs improve, to help make Oklahoma the most business friendly state in the US.